Despite drilling, gas prices are still marching upward

1/2

David Woo/Staff Photographer

Ryan Winfield of Star Transportation removes a fuel hose from his truck after filling the Kroger tank with 9,200 gallons of gas at the Kroger on Broad Street in Mansfield. He said some days a truck will deliver 9,200 gallons twice a day.

WASHINGTON — Gasoline prices are soaring again and eating away at the purchasing power of ordinary Americans.

The national average pump price hit $3.77 for a gallon of unleaded gasoline Wednesday, up a sharp 47 cents per gallon from just a month ago, according to the AAA’s Fuel Gauge Report.

In Dallas, the spike has been even greater: The average price for a gallon of unleaded was $3.70 Wednesday, up from $3.18 a month ago.

Pump prices nationwide have been marching higher for 34 consecutive days — the result of refinery closures and maintenance, lower oil production by Saudi Arabia, market anxiety about tensions in Iran and Iraq, and guarded optimism about the prospects for economic recovery in the United States, Europe and China.

And again, financial speculators appear to be a big part of the story.

More than a passing pain, rising gasoline prices act like a tax on consumers, harming the economy by whittling away at the amount of money the consumer can spend on other things. Gasoline expenditures as a percentage of U.S. household income hit three-decade highs in 2012, and the recent spike suggests 2013 might not be much better.

“This is the most expensive we’ve seen gasoline in the dead of winter,” which is usually a time of relatively low consumption, said John Townsend, a spokesman for AAA Mid-Atlantic. Noting that the increase comes just as the payroll tax cut has expired, Townsend said, “This is a double whammy for many consumers. … People got that shock to the system and now a shock at the gas pumps.”

Analysts differed widely on the causes of the increase.

The price of crude oil, which makes up about two-thirds of the price of gasoline, remains high by historical standards — though it did fall $2.20 a barrel Wednesday to settle at $94.46.

One factor is lower crude oil output from OPEC, the oil exporters cartel. Saudi Arabia is producing about 700,000 fewer barrels a day than a year ago, according to the International Energy Agency.

Yet global inventories of oil are ample, and the IEA has forecast that increases in oil supplies around the world — including the United States, Kazakhstan, southern Iraq and Africa — will outstrip increases in oil demand.

The United States now produces more than half the oil it consumes. In fact, the nearly 800,000 barrel-per-day increase in U.S. output from 2011 to 2012 reflected the largest one-year jump since oil drilling began in 1859.

And the U.S. Energy Information Administration projects that U.S. oil production will rise from 6.89 million barrels per day last November to 8.15 million by December 2014.

It all argues for lower oil prices, or at least less volatility in the price of oil and thus gasoline, but that hasn’t been the case.

“Oil prices are inflated by concern about potential oil supply disruption. All I have to do is watch TV for five minutes,” said Fadel Gheit, an oil analyst with Oppenheimer. He pointed to continuing tension between the United States, Israel and Iran over Tehran’s nuclear program, the ongoing civil war in Syria and factional violence in such oil-exporting nations as Libya and Iraq.

But it’s not all about supply and demand.

Commercial users of oil such as airlines and trucking companies that once dominated 70 percent of the market for future deliveries of oil now represent just 30 percent. Noncommercial financial speculators now command 70 percent of the market. The trading is dominated by Wall Street banks, hedge funds and other financial institutions that have no intention to take delivery of the oil needed to make gasoline.

“It’s speculators who are moving markets,” said Bart Chilton, a commissioner at the Commodity Futures Trading Commission. “They are almost exclusively the entire market at certain periods of time.”

Chilton led the charge in seeking limits that reduced how much of the market for crude oil any single trader or company could control. Armed with the 2010 revamp of financial regulation, the commission sought to establish hard limits, but that effort is bogged down in the courts.

“The more textured view would show you that at certain times it is not a question to whether or not speculators are moving the market. Speculators are the market,” he said.

Other forces are at work as well.

Nearly 1 million barrels a day of capacity has been turned off, with eight refinery closures or announced closures on the U.S. East Coast and the Caribbean over the past year. Several refineries also have been shut down for routine maintenance.

“What the market is really pricing in is potentially a new era of tighter gasoline supplies that are heavily reliant on imports,” said John Kilduff, a partner in the energy trading firm Again Capital in New York. “We might not ever turn back from these high prices. This isn’t episodic.”

To post a comment, log into your chosen social network and then add your comment below. Your comments are subject to our Terms of Service and the privacy policy and terms of service of your social network. If you do not want to comment with a social network, please consider writing a letter to the editor.